A recent Ontario court decision certifying a class action on
behalf of 207 franchisees against their franchisor, General Motors
of Canada Limited (GM), contains three important messages
franchisors should consider in dealing with franchisees. The
messages from the decision, Trillium Motor World Ltd. v.
General Motors of Canada Limited, are:
Franchisee/franchisor disputes are well suited to class
This is particularly so where the conduct at issue is that of
the franchisor treating all franchisees in common.
An important and unilateral amendment to the franchise
agreement may well trigger an obligation to deliver a disclosure
statement under Ontario's franchise disclosure legislation,
the Arthur Wishart Act.
In May 2009, in the face of dire economic circumstances
including government loans and financial support, GM issued notices
of non-renewal to over 240 of its 705 franchisees. The franchisees
were given six days to accept or reject an agreement whereby they
would receive a sum of money in exchange for a speedy shutdown of
their operations. GM suggested it would be forced to file for
creditor protection under the Companies' Creditors
Arrangement Act if the agreement was rejected.
More than 85% of the franchisees accepted the offer within or
shortly after the six-day offer period. In February 2010, the
franchisees who accepted the wind-down agreements commenced a class
action alleging that GM's strategy was designed to divide
the dealers, conceal GM's true financial position and
prevent them from preparing a united response. In particular, the
franchisees alleged that:
GM breached its statutory duty of good faith and fair dealing
(primarily under Ontario's Arthur Wishart
GM breached the franchisees' statutory right to
associate with one another;
The wind-down agreements were subject to rescission because
they were "franchise agreements" within the meaning of
the Act; and
GM failed to deliver disclosure statements to the
On March 1, 2011, the Ontario Superior Court of Justice
certified the class action on behalf of the 207 franchisees against
The Court agreed with the Ontario Court of Appeal (Quizno's Canada Restaurant Corporation
v. 2039724 Ontario Ltd.) that "a dispute
between a franchisor and several hundred franchisees is exactly the
kind of case for a class proceeding," noting that because a
franchise relationship involves a common franchise agreement, a
common franchise system and often common treatment of the
franchisees by the franchisor, such a relationship will often give
rise to "common issues [that are] ... particularly
suitable" for resolution in a class proceeding.
In addition, the Court emphasized that the causes of action
against GM dealt primarily with GM's overall collective
approach to the franchisees in May 2009; the conduct was common to
all the franchisees. In particular, GM communicated with its
dealers using a national satellite broadcasting system, issued form
letters and form agreements, and took the position that all the
dealers who were issued wind-down agreements stood in the same
Finally, the Court considered the issue of whether a franchisor
is required to deliver a disclosure statement under the
Act anytime it attempts to amend the franchise agreement.
The Act is silent about amendments. The Court held that,
while the legal issue remained unresolved at this stage of the
proceeding, it was certainly arguable that an "important and
unilateral amendment to the franchise agreement" would, in
fact, trigger the statutory obligation to deliver a disclosure
statement. The Court also noted that the wind-down agreements in
this case required the franchisees to divest themselves of their
entire franchises, a decision which is "every bit as
significant as [their] initial decision[s] to invest in the first
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).